California dairies thinning herds
by Ching Lee

MODESTO
June 3, 2009 1:01am

To help temper the nation's milk supply and strengthen prices for dairy farmers, the National Milk Producers Federation is moving forward with its largest herd retirement to date, removing more than 100,000 dairy cows and 2 billion pounds of milk from the market.

This latest round of herd retirement comes amid one of the toughest years for the nation's dairy farmers, who have been struggling with plunging milk prices, high production costs and a global recession that has dried up domestic and export sales of dairy products, says Jim Tillison, chief operating officer of the Cooperatives Working Together herd retirement program, which the NMPF administers.

"In California, if you add in the environmental costs and water costs, that puts a tremendous amount of pressure on dairy farmers," he says.

That added pressure might be why more California dairies are looking to CWT for a way out. Mr. Tillison says although CWT does not release individual state's participation numbers, California's participation in terms of bids in this latest herd retirement was higher than in previous rounds.

CWT received a total of 127 bids accounting for 71,591 cows from the Western region and accepted 88 of those bids, or 38,498 cows. That will remove some 761.1 million pounds of milk from the market.

Seventy-nine percent of the nearly 103,000 cows to be removed will come from the Western and Southwestern regions of the United States, while 60 percent of the farms selected are located east of the Mississippi River, according to CWT. Eighty-one percent of the milk removed will come from those two regions, a portion slightly higher than in the six previous CWT rounds.

"All dairy farmers are stressed economically right now," says Mr. Tillison. "However, the number of cows bid in this round by producers in the West and Southwest is an indication that their financial stress is particularly acute given where their milk prices and input costs are."

This is the third herd retirement CWT has implemented in the last 12 months and the program's seventh since CWT's inception in 2003. CWT conducted two herd retirements in 2008. The one in June removed 25,000 cows that produced 430 million pounds of milk. The one in October, which concluded in early February this year, removed 184 herds with 61,000 cows that produced 1.2 billion pound of milk.

Based on the across-the-board bids that CWT has received for this latest round, Mr. Tillison says the current dairy crisis isn't unique to the state of California.

"We took bids from almost all the states in the continental United States," he says. "That's an indication that it's not just California but it's an issue that dairy farmers across the country are facing. Essentially this is a nationwide issue and that's why we've got a nationwide program."

CWT's herd retirement program is voluntary and funded by dairy cooperatives and individual dairy farmers who contribute 10 cents per hundredweight on their milk production. By executing herd retirements and reducing the number of cows nationwide, the program aims to balance supply and demand and stabilize milk prices for farmers.

The current round of herd retirement, which was announced April 1, is based on 388 bids that CWT has tentatively accepted out of a total of 538 bids submitted by dairy farmers in 41 states. The 388 bids represent 102,898 cows and 2 billion pounds of milk, the largest single herd retirement carried out in CWT's history.

"The bids selected ranged from farms with fewer than 50 cows to dairies with over 5,000, demonstrating that farms of all sizes in all areas are facing a very difficult year in 2009," says Jerry Kozak, president and chief executive officer of the NMPF. "Those that took advantage of CWT's offer to retire their herds will aid others still wanting to farm by reducing the amount of milk coming to market and strengthening prices going forward."

Michael Marsh, chief executive officer of Western United Dairymen, says his organization assisted a number of California producers develop bids for CWT, but not too many of them ended up submitting their bids. He says part of the reason could be that as those producers worked out the math, they realized they might not be able to cover their debts by disposing their herds.

Still, he says the removal of nearly 103,000 cows and 2 billion pounds of milk will certainly "help the supply situation in the United States, without a doubt." He also notes that California dairy farmers have already been culling their herds heavier than usual just to keep their operations financially afloat during these difficult economic times.

"It is so bleak for the producers right now; they don't know what to do," he says. "We've had a lot of culling taking place in California, and our milk production year over year is below where it was in 2008."

California, the nation's No. 1 dairy state, produces about 40 billion pounds of milk annually, or about 22 percent of the national supply. Wisconsin ranks second, followed by New York.

Meanwhile, CWT field auditors are visiting farms whose bids were accepted, checking their milk production records, inspecting their herds and tagging each cow for processing, according to CWT. Farmers are usually given 15 days to send their animals to a processing plant after auditing, Mr. Tillison says. All farms can expect to be audited by early July, and all bidders will be notified no later than June 12 as to whether their bid was among those accepted.

Producers whose bids are accepted in this herd retirement will be paid in two installments: 90 percent of the amount bid times the producer's 12 months of milk production once all cows have gone to slaughter; the remaining 10 percent, plus interest, at the end of 12 months following the farm audit, if the producer and the dairy facility do not become involved in the commercial production and marketing of milk during that period.

(Ching Lee is an assistant editor of Ag Alert, a publication of the California Farm Bureau Federation, where this article originally appeared.)